Copper Price at Record High

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"Mined supply has lagged demand this year and stockpiles are dwindling."

It's been a good week for raw materials. The prospect of stronger U.S. growth, along with a weaker dollar, propelled oil to a two-year high above $90 a barrel. Gold reached a new all-time high above $1,430/oz. But copper's recent performance has been the most impressive. It has gained 35% since June. The benchmark three-month future eclipsed $9,000 a ton this week—a new record.

What the commentators said.

Given the fundamentals, it's no wonder copper has been on a tear. On the demand side, China, which hoovers up 40% of the world's supply, has been the key factor. Its manufacturing output accelerated for a fourth month in November. The launch of new ETFs backed by physical copper has also stoked demand. JPMorgan, Blackrock and Deutsche Bank are among the companies introducing them.

But mining companies have failed to keep pace with demand, noted Glenys Sim in Bloomberg. New reserves are becoming harder to find and the quality of the ore is declining. That means less metal can be extracted. CRU, the consultancy, says output from the top producer, Chile, has stagnated since 2007 now that large reserves discovered in the 1970s have been depleted.

Moreover, many mining projects in the pipeline two years ago had to be abandoned as the credit squeeze cut off financing. The result: Mined supply has lagged behind demand this year and stockpiles are dwindling. Inventories monitored by the London Metals Exchange have slumped by 30% and are at near-record lows. "The laws of supply and demand are set to push prices higher," said The Economist. But beware a bumpy ride, said Deutsche Bank. Further moves by China to rein in inflation and hence growth will dent sentiment towards base metals.

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